When it comes to financial wellness, the best approach is a proactive one, especially during uncertain economic times. Perhaps now more than ever, it’s important to take steps to protect, and build, credit. Here are a few strategies to build and maintain a favorable credit score now, and in the future:
Know the score.
Every great master plan begins with an honest assessment of the situation. In this case, that means understanding credit scores and history. Both are important, but they are not one in the same. Here’s the difference:
A credit score is a number between 250 and 900 depicting a consumer's creditworthiness. The higher the score, the better. Those with excellent or good credit are more attractive to lenders when it comes time to secure financing to make a large purchase, such as a home or a vehicle. A poor credit score makes it extremely difficult to secure a loan.
A credit report is a financial history detailing how and when bills are paid, how much debt has been accumulated, and how long credit accounts have been established.
Build a new habit: Check credit reports regularly.
It may not be in the forefront of many consumers’ minds right now, but experts are encouraging everyone to be more vigilant about checking their credit reports during the pandemic. Experian offers this advice in an article titled Protecting Your Credit During the COVID-19: “Especially now, making sure your credit reports are accurate is critical. This way, you can identify any potentially fraudulent activity and respond to it before it damages your credit. You should check your credit reports with all three credit bureaus (Experian, TransUnion and Equifax).”
Credit reports can also be found at annualcreditreport.com. To help consumers during the Covid-19 pandemic, all three credit reporting agencies are offering weekly credit checks free of charge. Errors on credit reports can, and should, be corrected. Notify any of the three credit bureaus listed above if credit history is not accurate.
Common credit score services: FICO & Vantage.
Different lenders use different services to access credit scores. The most common are FICO (Fair Isaac Corporation) and Vantage. Beth Langston, Assistant Vice President & Branch Manager at Fidelity Bank in Mountain Top, sheds some light on the differences between the two scales:
Very Good: 740-799
Fair: 580 – 669
Poor: Under 580
Good: 661 - 780
Fair: 601- 660
Poor: 500 – 600
Very poor: Under 500
The “good” category can be a critical range for some consumers. “Within this range, different lenders may view these scores differently,” Beth explained. “Some lenders look at your credit in that range to see if your score is 700 or better. When they see a score lower than 700, that’s when some lenders and credit card companies take more of a deep dive into your credit history to see why it’s not 700. Did you a miss payment? What caused this?”
How is a credit score calculated?
When working to build, improve, and maintain a favorable credit score, it’s important to know how credit scores are calculated. Beth provided an example of how the FICO score is determined:
Read the fine print. Ask questions.
How does a consumer know which scale a lender uses? Read the fine print on credit card statements, and don’t be afraid to ask lenders which service they use. Talk to a trusted Banker. They will be more than happy to help.
Also, keep in mind, even within these two scales, there are multiple versions of reports that can be pulled. It all depends on what criteria the lender uses to initiate their search. “You could be making 5 different purchases, and for each one, lenders are using a Vantage score, but they’re each using a different Vantage score,” Beth said. “Each creditor pulls your credit score using different criteria based on what they need through their experience with lending money.” Her advice to consumers to cope with this: “Make sure your bills are paid on time.”
In times of hardship, such as many people are experiencing due to the Covid-19 pandemic, paying bills on time can be a challenge. It’s much more difficult than trimming extraneous expenses from the budget, such as that pricey morning latte from the local coffee shop. Many people are recently furloughed, waiting on unemployment payments, and struggling to make those minimum payments. When cash flow is an issue, it’s time to start making phone calls.
Communication is key.
It’s not a phone call anyone wants to make, but it’s important to contact lenders and credit card companies immediately if it’s not possible to make a payment on time. Procrastinating will only make a difficult situation worse. Before the payment is due, call and explain the reason for hardship, and ask if they can help by reducing minimum payments or temporarily waiving fees. Many lenders, including Fidelity, have implemented client assistance programs for customers who have been financially impacted by Corona-19. Prior to making creditor calls, check out Credit Karma’s negotiation tips, gather statements, and be prepared to document each call in case follow-up is needed in the future.
Rely on a trusted Banker.
Beth encourages people to consult with their Bankers, too. “Sometimes people think they’re the only ones facing issues, and that’s not true,” she said. “Call your Banker and have a conversation about your finances. If you were sick, you wouldn’t have a problem going to your doctor, but when you have financial issues, it can be a little intimidating or embarrassing for people to go to their Banker and say, ‘I need help. I need you to help me figure out how to get back on track’.”
This is great advice in any economic climate – not just during times of national crisis. Bankers are here to help. “We talk to our clients about their overall financial picture,” Beth said. “It’s always wise to look at consolidating debt because that will free up money on a monthly basis that you can use to pay your utilities and other basic expenses that are really important. No one should ever think they’re alone. There are so many people with the same problems. Don’t feel intimidated about talking about it.”
Timeless credit-building strategies.
Fidelity Bank has built a strong history as trusted advisors to customers served, and is proud to be an active member of the communities it serves. With 21 branches located throughout Lackawanna and Luzerne Counties, and the Lehigh Valley, Fidelity Bank offers full-service Trust & Investment Departments, a mortgage center, and an array of personal and business banking products and services. The Bank provides 24 hour, 7 day a week service to customers through a variety of digital banking tools, branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 1-800-388-4380.
Daniel J. Santaniello, President, and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.